MARCH 3, 2004

A big mess in South Africa

Any hopes there might once have been of a government-funded Formula 1 race in South Africa have gone out of the window with the news that the legislature of the Free State has instructed its Public Accounts Committee to invesigate into the loss of public money at the Phakisa Freeway racing circuit.

Phakisa, located near the sleepy town of Welkom, was built in 1998 at a cost of around $14m. It was seen as a way to boost the tourist trade in the Goldfields area, which had suffered badly from cutbacks in the gold mining industry. The facility was designed with Formula 1 in mind and featured a 2.6-mile road course inside a 1.5-mile oval. It had the capacity to cater for only around 60,000 fans.

The facility hosted a motorcycle Grand Prix in 1999 but each event cost more than it generated and the government began asking questions last summer, when it was anounced that Phakisa had cost $72m but had raised only $7m.

The organisers argued that most of the money spent on construction had gone into local companies and created jobs and that the racing had attracted 5000 foreign tourists to the region each year. An independent survey showed that the event injected $18m annually into the Free State economy. The organisers argued that the government recouped $7.5m in taxes from the first three events and that the notional value of exposure generated by the race was worth around $75m.

The losses at Phakisa may not be over yet as the authorities are contracted to pay an additional $5.3m in licensing fees to Dorna Sports, the promoter of the MotoGP motorcycling series, for a race that is planned for next month. The government has refused to pay and at the moment Dorna is planning to run the event itself. This however will almost certainly be the last South African Grand Prix.

Phakisa's chief executive Bobby Hartslief stepped down several weeks ago as the controversy intensified. He recently spent several hours being grilled by the Public Accounts Committee and resigned his position soon afterwards and returned to his home in Colordo Springs in the United States, where he has been living since 2000.

Phakisa's defence is that the payments should have been authorised by a board of management appointed by the state government but no such body was ever appointed. The result of this is that all costs were unauthorised.

The collapse of Phakisa does not come as a surprise to some in South Africa who warned about the scheme back in 1997 before construction began. Judge Mervyn King, then the chairman of the Automobile Association of South Africa, warned the state government that the track would lose $60m if it went ahead. The government thought otherwise and followed Hartslief's plan, paying to build, maintain and promote the track but allowing income from TV rights and from the gate to go to the promoters of the events.

Hartslief, who was paid $80,000 a year as part of the deal with the Free State, told the committee that he did not believe that living in Colorado Springs had any impact on the efficiency of the company. It is not clear whether he will return to South Africa to answer further questions.

While recriminations may continue for months ahead, the loss of taxpayers money is going to be a huge problem for the credibility of the motorsport community in South Africa.